Resilient China and U.S. lift IMF global economic outlook for 2024
Additional reporting by Akira Kitado in Tokyo
The International Monetary Fund raised its global growth forecast for 2024, pointing to the better-than-expected performance of the U.S. and Chinese economies last year, as Asian emerging and developing markets remain the driving force.
Tuesday's update to the World Economic Outlook projects global growth to reach 3.1% in 2024, 0.2 percentage points higher than the previous forecast in October but unchanged compared with last year's growth. It also remains well below the pre-pandemic 20-year average of 3.8% annual growth.
"The clouds are beginning to part," IMF Chief Economist Pierre-Olivier Gourinchas wrote in a release accompanying the report.
"The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up," Gourinchas said. "But the pace of expansion remains slow, and turbulence may lie ahead."
China is projected to grow 4.6% in 2024, an upward revision of 0.4 points, but still below the 2023 growth estimate of 5.2%.
The outlook said China's upgrade "reflects carryover from stronger-than-expected growth in 2023 and increased government spending on capacity building against natural disasters."
India remains the fastest-growing major economy with growth projected to be 6.5% in 2024, up 0.2 points on robust domestic demand, but just below the 6.7% growth it saw in 2023.
The so-called ASEAN-5 -- Indonesia, Malaysia, the Philippines, Singapore and Thailand -- are forecast to grow 4.7% in 2024, an upgrade of 0.2 points from the previous update and an improvement over the 4.2% figure for 2023.
Emerging and developing markets in Asia, driven in large part by China and India, are expected to grow faster than any other region at 5.2%, a 0.4 percentage point upgrade from October.
Advanced economies are facing much more modest growth, particularly in the Eurozone, with the U.S. being the lone outlier of having its latest projection revised upward.
The U.S. is projected to grow 2.1% in 2024, a 0.6 percentage point upgrade from the last outlook, thanks to better-than-expected growth to end last year, while remaining below its 2023 figure of 2.5%.
Japan, however, had its 2024 forecast downgraded by 0.1 percentage points to 0.9% after notably strong 1.9% growth in 2023. The IMF said Japan's slowdown reflects the fading of one-off factors that boosted activity in 2023, such as a weaker yen, pent-up demand and a business investment recovery.
The IMF said the resiliency of the world's major economies in conjunction with a faster-than-expected fall in inflation has decreased the likelihood of a so-called hard landing -- a sharp recession coming as a result of monetary tightening.
The IMF's 2024 forecast for global headline inflation remains unchanged. Staff projections show the Federal Reserve, the European Central Bank and the Bank of England holding policy rates steady until the second half of the year, with the Bank of Japan maintaining an "overall accommodative stance."
Among economies with stated inflation targets, the IMF expects most to reach them by 2025.
For the first time since the April 2021 edition of the outlook, risks to the global economy are no longer tilted toward the downside but appear to be broadly balanced.
On the upside, faster disinflation and better-than-expected economic recovery in China could give a boost to the global economy. Downside risks include commodity price spikes from the worsening geopolitical situation in the Middle East, and the possibility of a faltering recovery in China.
"Shipping costs between Asia and Europe have increased markedly, as Red Sea attacks reroute cargoes around Africa," Gourinchas wrote. "While disruptions remain limited so far, the situation remains volatile."
The prospect for a soft landing is also improving for the Asian economy, said Krishna Srinivasan, director of the IMF's Asia and Pacific department, to reporters in Tokyo on Wednesday.
"Many regional central banks are on course to reach their inflation targets in 2024. Provided policymakers hold steady until inflation is firmly re-anchored, scope for monetary easing may emerge later in the year," he said.
With the Fed signaling interest rate cuts, depreciation pressures on Asian currencies are decreasing. But Srinivasan said, "There is a risk that divergent monetary stances in the U.S. and in Asia would trigger sharp exchange rate movements also this year."